Save Article

Lavasa Under the Gun Ahead of IPO

Not only for people, but for companies too bad news rarely comes alone. Or at least this seems to be the case for Lavasa Corp., a hill city developer which has recently been hit by a wave of terrible news – and just as it nears its initial public offering.

On Thursday the Central Bureau of Investigation alleged Lavasa was one of the companies that benefited from a bribe-for-loan scam case involving several of the India’s state-run banks, an insurance company and a financial services firm. Lavasa denied any wrongdoing and clarified that all its dealings were transparent.

The next day, India’s Ministry of Environment ordered construction work to be halted in several sites of “Lavasa City” – a project to build a series of towns in the picturesque Sahyadri mountain range, about three hours outside Mumbai, India’s financial capital. In its notice the Ministry had said it would order some structures of the project to be demolished unless the company provided sufficient evidence to prove it did not breach the terms of the project’s environment clearance agreement.

In a statement released Saturday Lavasa said it was “shocked” to receive the notice. In a statement released Monday, the company added that the notice came with no forewarning and “without following any principles of natural justice.”

This has badly hit the stocks of its parent company, Hindustan Construction Co. Shares in the company plummeted 11% Thursday and a further 19% Friday. Just before markets closed on Monday, shares were flat at 40.15 rupees, after an intraday low of 37.55 rupees.

This comes at a time when Lavasa is preparing a 20-billion rupee ($437 million) IPO – which has already been approved by India’s capital markets regulator. HCC Chairman Ajit Gulabchand Friday said on CNBC-TV18 that the company will decide on the timing of the Lavasa IPO later in December after consulting with the merchant bankers.

“We believe that pending any further clarity on this (bribe-for-loan scam), the company may face difficulty in raising any further debt from banks,” Goldman Sachs said in a note to clients Monday.

The brokerage holds its price target at 68 rupees and a Neutral rating on the stock.

But Lavasa will need plenty of cash: It aims to complete the first of the five Lavasa towns – Dasve – in 2011. A debt of around 17 billion rupees on Lavasa’s books, certainly doesn’t help either.